Recipe for NI economic recovery
Published 04/10/2011 | 11:09
With the Northern Ireland Programme for Government due to be published, we asked two experts to think about what economic commitments the Executive should make and set them the kind of pledge-card format made famous by the Labour Party in 1997
Step 1 - Richard Ramsey, Chief economist at Ulster Bank
Establish a Department for the Economy by 2013
This would include merging DEL, DETI and economic functions of other departments. The cut in the number of other departments alongside reductions in public bodies would take place within the same timescale. The Assembly would establish an independent economic unit to brief/advise it on broad economic issues.
Establish a NI Office for Budget Responsibility by 2012
This independent body would advise on and scrutinise NI Government spending over the next five years. Its focus would include determining whether spending was consistent with an over-arching economic strategy and provide greater transparency on the affordability/sustainability of existing policies.This would help communicate that public money is being spent in the best way..
Promote a Government of All the Talents (GOAT)
The previous UK Government brought external expertise into government, such as Sir Digby Jones, Lord Myners and Lord Sugar who was installed as an ‘enterprise tsar’. Stormont has rightly placed the economy as top priority but has broadly the same personnel and structures to deliver it when it was not the priority. A step-change over the next four years is required by bringing in expert people and putting them in the key positions for greatest effect.
This would include appointing a Minister/Junior Minister for the Economy from the business community who has a track record of delivery. Similarly, appointing a Minister of Public Sector Reform, or at least a politician whose sole remit is delivering reform. Furthermore, credibility would be enhanced if advisers were chosen for their expertise in economics/economic development or public sector reform, as was the case in the past.
Public-sector jobs are no more important than private-sector ones
A key cross-cutting theme that has been raised by many commentators is that in Northern Ireland public-sector jobs are treated as more important than private sector. This manifests itself in terms of preferential pay and conditions (for comparable jobs) but also in terms of what parts of society bear the brunt of the public expenditure cuts. For example, rate-payers in the construction sector or the business service sector can feel that they are experiencing an imbalance of pain. Cuts should be concentrated on waste and inefficiency, with frontline services protected as much as possible.
Invest more expenditure per capita on capital investment than the UK average
A rebalancing of Northern Ireland’s public expenditure from current to capital is desperately needed. NI suffers from an infrastructure deficit relative to the UK and therefore needs to invest more per head on capital investment than the UK average.
NI has spent considerably less on transport than England, Wales or Scotland over the last five years.
Narrow the public-private wage premium, for comparable jobs, over the next four years
Rebalancing the economy is a two-way street. Higher pay and more favourable conditions within the public sector, relative to the private sector, has been a key factor in creating the current imbalance towards the public sector.
It is also the most important lever the Executive has partial or total control over to rebalance the economy and ensure value for money.
The public sector pay-setting process should be more closely aligned to market rates. Middle-managers and lower grade administrators should not have wage premiums relative to their private sector counterparts for comparable jobs.
Maximise the cost advantages and opportunities from the private sector delivering public services
Many like-for-like jobs are now cheaper in the private sector, so these potential cost advantages should be exploited in delivering value for money for the rate-payer/tax-payer.
Begin phasing in a cut in corporation tax, subject to approval, from 2013 with the goal of a 12.5% rate by 2016
Northern Ireland has a major employment creation problem and throwing all policies within the policy armoury at it is required. Without lower corporation tax, it is difficult to see how NI will generate enough jobs. Swapping public expenditure for incentives should be a priority.
No household should receive more on benefits than the average working household
Clearly, not supporting and adhereing to this principle would remove an incentive for people to seek work as opposed to receiving welfare benefits.
Review and benchmark pay and conditions within the public sector with a view to prioritising front-line jobs and rebalancing the economy
Setting pay levels in line with market conditions and a premium between frontline and nonfrontline pay rates. Salaries for lowest grade administrative jobs shouldn’t be comparable to the starting salaries of key front-line staff (e.g. nurses and teachers)
If the Executive signed up to all of these pledges, the hypothetical share price of NI Plc would soar.
Step 2 - Adrian Doran, Head of Barclays Corporate in Northern Ireland
With holidays a distant memory, the Northern Ireland Executive is clearly back to business with a full agenda. Indeed, it may have a problem in deciding where to start first. With this in mind, I have outlined what I believe to be the top five priorities.
Given the consultation exercise is now complete, it’s almost crunch time in relation to the debate on reducing corporation tax. Much will depend on the Treasury and the corresponding cut to the block grant (a figure which seems to rise by the week). It has been encouraging to see our politicians stick together on this issue, and it’s important that they continue to constructively work together to negotiate the best possible deal for Northern Ireland.
While the overwhelming majority of the local business community appears to have responded favourably to the consultation, there is a price at which the business case for cutting corporation tax simply will not make sense. However, if the numbers remain realistic (and verifiable), then my opinion is our politicians should make this issue a top priority in the coming months.
Review of public administration (RPA)
Whatever happened to RPA? It’s time the Executive dusted down this plan (which was launched in 2002) and begins the business of streamlining our public administration. The lack of progress in this area needs to be addressed, particularly when other regions in the UK (regions which are much less reliant on block grant) are making headway in this space. Significant ideas have also been generated by business lobbies such as the CBI, IoD and Chamber of Commerce. It’s now time to implement these.
Reform of the planning system
There has been a lot of press commentary on the government’s Draft National Planning Policy Framework which seeks to relax planning laws by a “presumption in favour of sustainable development”. Essentially, this means that in order to speed up development, the benefit of doubt will be given to developers (rather than to objectors).
Northern Ireland’s complicated and often slow planning regime has long attracted criticism from local businesses and inward investors alike, and could undoubtedly benefit from a root-and-branch overhaul. One does not need to list the various projects that have been delayed or hindered by our planning system. In today’s economic climate, these projects are needed now more than ever, but this development can only happen with a slicker planning system that puts economic growth at the centre of the decision-making process.
Contrary to popular belief, Northern Ireland fared reasonably well with its public sector budget and related cut-backs, compared to our neighbours in GB (and our politicians deserve much credit for this). While our revenue budget has been reasonably protected with ‘only’ an 8% reduction over four years, the capital budget has been significantly reduced — a 40% reduction over four years.
This may make it more difficult to get new infrastructure projects off the ground, but, it doesn’t make it impossible. With some innovative thinking around financing, some major new infrastructure projects can be accelerated, providing a badly needed stimulus to the construction sector.
By any measure, Northern Ireland is in a much better place than it was 20 years ago. Our economy, while undoubtedly suffering from the aftermath of the downturn in the global economy, and more specifically, from the legacy of our property crash, is perhaps down, but it is not out. However, it is noticeable that confidence in our business community is extremely low — perhaps at a level which is not warranted.
I am struck that when I am speaking to counterparts in Barclays in other UK regions, the talk is of “recovery”, “positioning for the upturn”, rather than “recession” and “downturn”. Perhaps their regional economies are in better shape, but I can’t help thinking that in this part of the world we are forever talking down our economy. I heard Minister Sammy Wilson speak at a dinner recently, at which he rightly bemoaned the lack of confidence in our business community. I would appeal to all our politicians to lead from the front on this topic and to challenge misconceptions that may exist, for instance around the scale of public sector cut-backs.
Our politicians clearly have a lot in the ‘in-box’ as they get back to business, however, I believe the above issues should be given priority in the months ahead. Much has already been achieved; for example, working together on corporation tax, in agreeing a four-year budget and settling higher education tuition fees — and our politicians deserve credit for this. They have shown that they have the capacity to step up to the challenge. My sincere hope is that this trend continues, and that the next session in Stormont sees some real action on our economy.